When German Finance Minister Wolfgang Schäuble, a trained lawyer, announced an agreement on Wednesday night in Brussels on the long negotiated EU banking union, observers might have been left thinking that he is precisely this type of lawyer.
On paper, Schäuble and his negotiators are right about very many points. They succeeded in ensuring that in 2016, the Single Resolution Mechanism will go into effect alongside the European Union banking supervisory authority. The provision will mean that failing banks inside the euro zone can be liquidated in the future without requiring German taxpayers to cover the costs of mountains of debt built up by Italian or Spanish institutes.
They also backed the European Commission, which wanted to become the top decision-maker when it comes to liquidating banks. The Commission will now be allowed to make formal decisions, but only in close coordination with national ministers from the member states.
But it goes even farther. Negotiators from Berlin have also created an intergovernmental treaty, to be negotiated by the start of 2014, that they believe will protect Germany from any challenges at its Constitutional Court that might arise out of the banking union.
They also established a very strict "liability cascade" that will require bank shareholders, bond holders and depositors with assets of over €100,000 ($137,000) to cover the costs of a bank's liquidation before any other aid kicks in. The banks are also required to pay around €55 billion into an emergency fund over the next 10 years. Until that fund has been filled, in addition to national safeguards, the permanent euro bailout fund, the European Stability Mechanism, will also be available for aid. However, any funds would have to be borrowed by a national government on behalf of banks, and that country would also be liable for the loan. This provision is expected to be in place at least until 2026.
The government in Berlin put a strong emphasis on preventing the ESM, with its billions in funding, from being used to recapitalize debt-ridden European banks. Schäuble was alone with this position during negotiations, completely isolating himself from the other 16 finance ministers from euro-zone countries. Brussels insiders report that it was "extremely unusual because normally at least a few countries share Germany's position."
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The governor of the Bank of England, Mark Carney, has said he will look at raising the Bank of England base rate, to which lenders hook their mortgages, when unemployment has fallen to 7%.
A recent surge in job creation saw unemployment drop to 7.4% in December, raising expectations that an increase in the Bank's base rate will come in 2015, and have an impact on lenders' rates this coming year.
The markets believe the base rate will increase to 3% by 2018, with what the Resolution Foundation describes as "huge social and human cost". However, the thinktank warns that a hike of just 1 percentage point more than that, to 4% by 2018, would lead to 1.4 million homeowners facing severe financial pressure.
If interest rates rise by two percentage points beyond market expectations – to 5%, still 0.5% below the 2007 base rate – the number of people in substantial and perilous debt would rise to 1.7 million – or as many as 2 million if economic growth continues to be sluggish.
The analysis finds that while people across the social spectrum could be in trouble, lower-income households "look particularly vulnerable", with one in five of those with debt being in danger.
The thinktank says that while it does not follow that all households in "debt peril" will default on their mortgages, those spending more than half of their income on debt repayments will find their financial position increasingly difficult to sustain.
Carney started Gold manipulation when he was at BIS. He arranged for all the Central Banks to dump paper Gold. China has purchased about 235000 tonnes in 2013 which In think is called demand.
https://www.google.co.uk/#q=kw...
I buy Gold on the Dollar Cost Averaging basis, in anticipation of the end game and destruction of world currencies within eighteen months.
http://www.marketoracle.co.uk/...
http://www.marketoracle.co.uk/...
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Gold will finish the year as one of the worst-performing asset classes, bringing to an end a decade-long rally in the precious metal.
Gold has suffered its sharpest fall in 30 years, down almost 28pc over the past 12 months to close 2013 at about $1,200 (£725) an ounce.
That compares badly against other assets, with the S&P 500 up 28pc, the FTSE 100 gaining around 13pc and Brent crude oil futures up about 2.5pc in the same period.
The eurozone is “sleepwalking” its way towards a Japanese-style deflationary trap that could last decades, the world’s largest bond fund has warned.
The Pacific Investment Management Company (PIMCO) said deflation posed the biggest threat to the single currency bloc in 2014. A stubbornly strong euro together with painfully slow reforms and a “paucity of ambition” threatened to push the bloc’s already low inflation rate into negative territory, the fund said.
“The demographics in large parts of Europe aren’t great,” said Mike Amey, portfolio manager and managing director at PIMCO.
“Even now, success in Europe is defined by 12pc unemployment and a growth rate of between zero and 1pc. If that’s success, they are at risk of slipping into deflation just because they’re willing to tolerate these economic conditions.”
Deflation poses a threat to economies, because if prices are falling people put off spending in anticipation of further falls. Retailers are forced to slash prices, which leads to declining profits, lower wages and people struggling to meet fixed loan repayments because of falling salaries.
Ben Bernanke will bow out in the new year, having already set in train the process of tapering the Fed's vast programme of quantitative easing. Bernanke said he expected it to take until the end of 2014 to shut the money presses down altogether, but it will be helpful to Yellen, who has often been seen as dovish, that the symbolic first step towards weaning the financial markets off super-cheap money has already been taken. Better still, world markets responded enthusiastically.
But it may not all be plain sailing: just because investors shrugged off the first step doesn't mean there won't be a more severe response as tapering continues. And the make-up of the Fed's open markets committee, which sets interest rates, is due to take on a more hawkish tone as QE sceptics Richard Fisher (of Dallas) and Charles Plosser (of Philadelphia) take up voting seats. If inflationary pressure rises as the economy picks up, Yellen will face growing calls to move faster. As a serious economist and Fed veteran, she has as good a chance as anyone of walking the fine line between scuppering recovery and letting inflation run out of control. But unwinding QE on this scale is an unprecedented challenge: it seems all but certain that more turmoil lies ahead.
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